Cool Weather Chills Target Results

MINNEAPOLIS —Target Corp. here on Wednesday said poor weather and tax-burdened shoppers led to soft sales and earnings in the fiscal first quarter.

Net earnings for the quarter that ended May 4 totaled $498 million, a 28.5% decline vs. the same period last year. Sales of $16.7 billion improved by 0.5%, and comparable-store sales declined by 0.6%. Earnings per share of 82 cents were below consensus analyst estimates of 86 cents. Quarterly same-stores sales were Target’s weakest since 2009.

“Our first-quarter earnings fell short of our expectations as we faced a choppy and challenging environment caused by unfavorable weather and this year's payroll tax increase,” Gregg W. Steinhafel, Target’s chief executive officer, said in a conference call discussing results Wednesday. “Our U.S. business generated softer than expected sales and traffic, particularly in our seasonal categories, as we experienced one of the coldest spring seasons on record following record warmth a year ago. While we are not satisfied with this quarter's performance, we remain highly confident in our strategy and our team's ability to deliver strong results going forward across a broad range of conditions.”

Wal-Mart Stores, Bentonville, Ark., expressed similar sentiments addressing disappointing first quarter sales earlier this month. The slow quarter prompted Target to adjust its earnings guidance for the year downward to $4.70 to $4.90 per share, compared with prior guidance of $4.85 to $5.05. Target’s expectation for yearly comps has also dimmed.

"Without some unexpected improvement in the economy and the consumer, our full-year comparable-store sales will likely be in the 2% to 2.5% range, somewhat below the 2.7% we outlined at the beginning of the year,” said John Mulligan, Target’s chief financial officer.

Kathryn A. Tesija, Target’s executive vice president of merchandising, said sales in weather-dependent categories such as apparel, lawn and patio equipment trailed last year’s pace by 6% to 7% as a result of colder spring weather than a year ago. Comps in less discretionary categories, including food and consumables, experienced low-single digit comp increases, she said. Tesija said Target was also working to provide deeper selections of local brands and assortments to meet particular store demographics in categories like food, beauty and home goods.

Target’s launch in Canada has resulted in high expenses but more sales than anticipated, Steinhafel said. The retailer opened its first 24 stores around Greater Toronto in March and more recently opened 24 stores in Western Canada.

“Now that we are beyond the grand opening surge in this first cycle of stores, we’re encouraging our new Canadian guests to make Target a preferred destination for categories throughout the store including food, health, beauty and household essentials, as these categories play a key role in driving trip frequency over time,” he said.